Greenback Struggles To Gain Footing After Massive Drop That Was The Biggest In 4 Months
The US dollar kicked off the week on a rather rough note after experiencing its biggest weekly decline that it has experienced over the past four months.
The Greenback’s poor performance last week was fueled by the cautious outlook by traders especially with the increased prospects of continued China-U.S. trade talks during the G20 summit this week. The USD has been on a free fall over the past week due to a large market sell-off involving major currencies.
The sell-off was triggered by a dovish monetary policy outlook by global central banks as a result of the currently weak nature of the global economy. The USD’s performance last week revealed that it tanked by 1.4% against other currencies. This is the Greenback's largest weekly decline since February.
Potential interest rate cut among the price influences
Some analysts believe that the markets and also most investors out there have turned bearish against the USD. The massive sell-off that happened last week strongly suggests so.
The bearish outlook might also be influenced by the high likelihood that the Federal Reserve will slash interest rates compared to central banks in other countries. The European Central Bank has already slashed rates into negative territory, and so it is less likely to cut rates than the U.S.
"U.S. rates are still higher than other countries' rates, and U.S. bond yields are not likely to go negative any time soon, whereas many other countries' yields are already negative far out into the curve," stated ACLS Global’s chief strategist Marshall Gittler.
The impact of the bearish US dollar performance was felt in the hedge fund market, which turned slightly bearish on the heels of the Greenback's poor weekly performance data. Hedge funds have also bolstered their bearish bets against various currencies such as the Australian dollar. The bearish bets are also based on the slowing global economy as global trade becomes more volatile.
US dollar index seeks new momentum from G-20 events
Investors now have their eyes on the U.S. and Chinese leaders to see whether the two sides will finally come to a middle ground that will end their ongoing trade war. Analysts are expecting the G-20 summit which will be held in Japan this week. President Trump’s meeting with Chinese President Xi Jinping will be the highlight of the meeting.
US dollar index spot - Source
Analysts are optimistic that the US dollar will gain momentum that will set it on a recovery path, especially if the talks yield positive results. Dollar index demonstrated an overall bearish performance last week, perhaps in anticipation of more volatility and potential weakness this week.
The U.S., however, continues to outperform rival markets, and this should provide a bullish anchor for the USD.
US dollar index approaches critical support level
As far as the technical performance is concerned, the US dollar index is closing in on the 95.574 price point, which represents a critical support level.
This means that the price will likely reverse at or near that price point with the price point potentially going up to 95.798. However, there is still a chance that the support level will fail to hold, and thus, the price will continue going down.